This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in
After successfully selling its stake in REC and PFC in the current financial year, the government will be divesting its 5% stake in Dredging Corporation through an Offer for Sale (OFS) and raise approximately Rs. 53.21 crore from the investors. It is a relatively smaller issue and would result in the government raising a minimum of Rs. 53-54 crore from the investors.
- Issue Opens & Closes: Friday, August 21, 2015
- OFS Bidding Time: 9:15 a.m. till 3:30 p.m.
- Issue Type: Offer for Sale (OFS)
- Floor Price: Rs. 382
- Lot Size: 1 Equity Share
- No. of Shares Offered: 14,00,000 Equity Shares
- Minimum Issue Size: Rs. 53.21 Crore
- Proposed Listing: NSE and BSE
- National Stock Exchange (NSE) LIVE OFS Link
- Bombay Stock Exchange (BSE) LIVE OFS Link
Shares on Sale – The government currently has 78.56% stake in Dredging. After this OFS of government’s 5% holding, the stake will come down to 73.56%. A total of 14,00,000 shares will be sold by the government in this OFS, out of which only 10% shares i.e. 1,40,000 shares will be reserved for the retail investors investing up to Rs. 2 lakh.
Floor Price – The government made the announcement for this OFS on Wednesday. Its stock price fell by 4.53% on Thursday to close at Rs. 387.65 on the National Stock Exchange (NSE). The government has set Rs. 382 as the floor price for this OFS, a discount of 1.46% to its closing market price.
10% of OFS & 5% Discount for the Retail Investors – Unlike PFC OFS, in which 20% of the shares offered were reserved for the retail investors, this OFS will have only 10% shares on offer reserved for the retail investors. Also, as always the government has once again decided to offer a discount of 5% to the retail investors. This discount will be offered on the price at which the retail investors successfully bid in the OFS or the cut-off price set by the government, whichever is higher.
Brokerage – Unlike IPOs, stock brokers levy brokerage charges on these OFS transactions. These charges are normally higher than the rate of brokerage investors pay on their routine transactions. So, if the allotment price is fixed at say Rs. 382, the retail investors will get it at Rs. 362.90 a share plus applicable brokerage charges and taxes thereon. So, the retail investors should consider these charges in their overall cost of acquisition.
Cut-Off Option – Made compulsory by SEBI recently and introduced with the PFC OFS, the “CUT-OFF” price option will be there in this OFS as well. But, in the absence of an upper price cap, I think this option is of no use in increasing your chances of getting allotment. I think SEBI should introduce an upper price cap for the retail bidders in these OFS or some other innovative method of bidding should be worked upon.
Only a Single Day OFS – Dredging OFS will will remain open for a single day only and that too, during the trading hours of the stock exchanges i.e. between 9:15 a.m. and 3:30 p.m. If successful, you’ll get the shares credited in your demat account by Monday.
Bidding will start on the stock exchanges at 9:15 a.m. today and you can check the LIVE bidding status here on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE).
How does an OFS process work?
If you are investing in an OFS for the first time and want to know more about the process, here is the link to check the details about it. If you have any query regarding the process, please share it here, I’ll try to respond to it as soon as possible.
How to invest?
You need to contact your broker to know how it is facilitating the bidding process. I think most of the broking firms must be providing the investment facility through their online platforms. If you don’t have access to the online platform, you should contact the customer care department of your broker and get your bid placed through telephonic confirmation.
Should you invest in Dredging OFS?
As the sentiment has turned bearish and the price gap between the floor price and the closing market price being very small, Dredging OFS does not offer reasonable margin of safety to the retail investors. I think with the sentiment for equity investments down, it is better for the retail investors to wait for the stock price to correct to Rs. 320-350 range before taking a plunge.
It added that no single bidder other than mutual funds and insurance companies shall be allocated more than 25 percent of the offer shares. Don’t have an account yet?
Dredging stock price plunges below Rs. 350.
I had applied at cut off price and but it is not known whether any allotment was given or not. But seeing the money in the broker’s ledger today , i may be sure that no allotment was given . If so, then i get a chance to apply for OFS of IOC. It appears that applying at cut off price is little bit risky
Hi Santonu,
Cut-Off price option isn’t working in these issues. Therefore, I think it is better to apply for these OFS as per the sentiment prevailing in the market.
Clearing Price for the retail category is Rs. 393.10 and for the non-retail category is Rs. 382. Its stock price touched a low of Rs. 378.60 on the BSE and closed at Rs. 381. With US markets plunging 400 points as I write, it seems the stock price should open below Rs. 375 on Monday.
Dredging Corporation OFS has been subscribed to the tune of 11.65 times in the retail investors category and 1.66 times in the non-retail investors category. Clearing Price will be announced in the evening today.